TREASURIES-U.S. 10-year yield highest in over 2 years


* U.S. 10-year yield breaks above 3 percent on light volume * Two-to-10-year yield gap grows to widest since 2011 By Richard Leong NEW YORK, Dec 27 (Reuters) - U.S. benchmark Treasuries yields rose above 3 percent to their highest level in more than two years on Friday as traders pared their bond holdings in preparation for the Federal Reserve buying fewer bonds in 2014.

The latest selloff helped to assure the Treasuries market will finish one of its worst years ever as the 10-year yield has risen 1.25 percentage points this year.

Last week, the U.S. central bank said it will reduce its monthly purchases of Treasuries and mortgage-backed securities by $10 billion to $75 billion in January due to evidence of an improving economy. At the same time, the Fed signaled its commitment to hold short-term interest rates near zero because unemployment has remained higher than where policy-makers like and inflation has been stuck below their 2 percent target.

"The economic data have been better-than-expected, while at the same time the Fed is promising to be easier for longer. Then there's more chance of inflation later, which is driving the 10-year yield higher," said Lou Brien, market strategist at DRW Trading in Chicago.

There was no major economic release on Friday and the Fed will not resume buying Treasuries until later next week.

On the open market, the 10-year Treasury note last traded down 7/32 in price for a yield of 3.019 percent, up nearly 3 basis points from late on Thursday.

The 10-year yield, a benchmark for mortgages and other long-term borrowing costs, touched 3.02 percent earlier, the highest intraday level since July 2011, according to Reuters data.

The yield spread between two-year and 10-year Treasuries grew to 2.61 percent, its widest since July 2011, up from 2.58 percent on Thursday and 2.51 percent a week earlier.

Analysts downplayed the 10-year yield breaching the 3 percent threshold for the second time this year due to the light post-Christmas trading volume.

"People are not going to set up new positions right now based on this number," Brien said.

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